ONGC to ap­proach share­hold­ers for ap­proval to raise 25000 cr for HPCL buy

Chemical Industry Digest - - News & Views -


and Nat­u­ral Gas Cor­po­ra­tion Ltd (ONGC) will seek share­hold­ers ap­provals to raise a debt of ` 25,000 crore to fund its ac­qui­si­tion of Hin­dus­tan Petroleum Cor­po­ra­tion Ltd (HPCL).

ONGC’s board has al­ready ap­proved rais­ing the debt and will now take the pro­posal to share­hold­ers. “This is a blan­ket ap­proval. We have kept all op­tions open from bank loan to is­sue of do­mes­tic or over­seas bonds,” said a se­nior ONGC ex­ec­u­tive. ONGC would need ` 37,750 crore to pay for govern­ment’s 51.1% stake in HPCL at cur­rent mar­ket prices.

ONGC plans to use a mix of in­ter­nal re­sources and debt to fund the deal. It has a cash re­serve of about ` 13,000 crore. This would be ONGC’s first bor­row­ing in more than a decade. The com­pany has mostly de­pended on its pile of cash to fund its capex. “A de­ci­sion on how we fund the deal would de­pend on val­u­a­tion of HPCL stake. We would eval­u­ate all op­tions from tak­ing bridge loan from do­mes­tic and for­eign banks or is­sue bonds in In­dia or over­seas and will go for a mix that works best for us,” the ex­ec­u­tive said.

The Cab­i­net re­cently in prin­ci­ple ap­proved the sale of the govern­ment’s en­tire 51.11% stake in HPCL to ONGC in a bid to cre­ate a state-run in­te­grated oil ma­jor that can com­pete with pri­vate and for­eign play­ers. ONGC cur­rently pro­duces 60% of the coun­try’s crude oil and with HPCL as its sub­sidiary will be­come the na­tion’s third-largest re­finer with con­trol over 40 mil­lion tonnes per an­num of re­fin­ing ca­pac­ity. ONGC al­ready con­trols a 15 mil­lion tonnes re­fin­ery through its unit, MRPL. The deal would also give ONGC con­trol over HPCL’s 14,500 fill­ing sta­tions, or about a quar­ter of coun­try’s petrol pumps.

HPCL to buy MRPL as part of ONGC-HPCL deal

Man­ga­lore Re­fin­ery and Petro­chem­i­cals (MRPL), which was once part of HPCL and then changed hands to ONGC, will now to be back in the fold of its orig­i­nal par­ent. This is part of the over­all plan where HPCL is ex­pected to buy MRPL from ONGC for a hefty ` 15,000 crore.

While the pay­out for ONGC to buy out the Cen­tre’s 51 per cent stake in HPCL will cost nearly ` 37,750 crore, a sale of its own eq­uity in MRPL as part of the in­te­gra­tion ef­fort will re­duce this outgo by close to half. In the process, this will mark a jour­ney back home for this 15 mil­lion tonne re­fin­ing com­pany which was first cre­ated as a joint ven­ture be­tween HPCL and the AV Birla Group in the early 1990s.

To­day, ONGC is a ma­jor share­holder in MRPL with 72 per­cent, while HPCL’s eq­uity has whit­tled down to a pal­try 17 per cent.

If every­thing goes ac­cord­ing to plan, once HPCL buys out ONGC’s 72 per cent stake, its own hold­ing in MRPL will be up to nearly 90 per cent. The added bonus will be in get­ting a foothold into the petro­chem­i­cals space, an area of tremen­dous in­ter­est for HPCL.

The ONGC-HPCL deal will bring in ap­prox­i­mately ` 37,000 crore to the cen­tre which will con­tinue to be the largest share­holder in the new en­tity. From HPCL’s point of view, it will be poorer by ` 15,000 crore by tak­ing over MRPL which it re­ally should not have lost in the first place.

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